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Cloud Spend Up 23%

The evolution to Cloud is changing, or I would even go as far to say that it has changed the way vendors deliver software and services. The model has shifted the cost of software from the balance sheet to profit and loss. And users are getting accustomed to the operational flexibility provided by ubiquitous access to information and working tools.

The shift to hosted, services such as Azure or Amazon AWS, and software rental under the Software as a Service (SaaS) model has created a challenge. A challenge that falls to the Software Asset Management (SAM) industry and SAM professionals to overcome.

As I see it, the question is this: are organizations in a position to manage new Cloud technologies and licensing models? Some are, some aren’t. But either way, my advice is to get Cloud ready, as the Cloud spend trend is on the up!

THE NUMBERS

Analyst firm Forrester recently released predictions for software market spend in its September 2016 report “The Midyear Global Tech Market Outlook For 2016 To 2017.” The estimates show a USD 463 billion spend for software in 2017, but the headline number is the USD 119 billion that will be spent on Cloud software and hosted single-instance subscription revenues (2017).

To put this figure into context, it represents an increase of almost 300 percent on 2011 (up from USD 30 billion), and a 23 percent increase on 2016.

With the current adoption rates of Microsoft Azure and Amazon’s AWS, with sources claiming that one in five of every corporate employee now using Office 365[1], the upward trend is likely to continue as more organizations move over to, or are pushed over to, the Cloud model.

The Forrester report highlights that software will be the second-largest technology spend after telecom services. The 2017 figures for telecoms services, which include mobile devices and applications, are estimated to reach a spend of USD 590 billion – owing largely to the rising use of smartphones within organizations. In the report, Forrester mentions that vendors transitioning to cloud experience a dip in revenue “for the first few years as the new SaaS subscription fees fail to replace the loss of the old license fees.”[2] The revenue drop is, however, short-lived.

For example, a copy of Office 2010 Professional may have cost around USD 350 per device on the perpetual model. For Office 365, organizations might pay a monthly fee of around USD 20 per user – depending on the volume and package. Naturally, the shift to SaaS creates an initial decline in revenue as buyers spend less in the first year. The early adopters of Microsoft’s Cloud and subscription model are now going through their first three-year Enterprise Agreement.

These organizations are likely to have paid more on average for the use of their SaaS-based products compared with the perpetual license cost. Even so, most enterprises are satisfied with the new model, as the SaaS model boosts productivity, and the fact that the initial up-front costs are far less than the previous perpetual model.

GROWTH IN SOFTWARE SPEND

The overall estimate for software spend in 2017 (USD 463 billion) shows a 9.5 percent increase on 2016 predictions. Of the 2017 spend prediction, Forrester attributes 26 percent to Cloud, compared with 15 percent in 2014 – when significantly fewer SaaS and Cloud based offerings were available. That said, 2014 was a significant year for vendors like Microsoft and Adobe who shifted their flagship products to the SaaS model.

At the time, their financial reports didn’t make for pretty reading, but Microsoft’s Q4 2016[3] (October, November & December) report shows that Cloud services with Azure revenue increasing by 102 percent. Which is unbelievable growth in my opinion. So, after a sluggish financial start, software vendors that have adopted Cloud technologies, are now reaping the rewards.

The adoption rate and leveraging power that cloud will bring to the software and Software Asset Management market will continue to rise as vendors continue to show financial gains and users become accustomed to the operational freedom brought about by software availability on multiple devices. As is often the case with the adoption of new technologies and growth, some challenges will need to be overcome.

EFFECTIVE MANAGEMENT IS THE KEY

The purchasing ease of Cloud services and SaaS applications, together with simple pricing models presents one of the initial challenges of Cloud: sprawl and spiraling cost. Without Software Asset Management or the right processes in place, within a very short period organizations tend to experience Cloud sprawl and the huge costs associated with it.

The solution is governance and vigilance on who, within your organization, can spin up Cloud services. I see a lot of organizations investing in services like Microsoft Azure without first putting procedures in place to manage the new technology. Unfortunately, enterprises tend to focus on promoting the benefits of Azure to users, and not surprisingly notice a spike in the deployment of virtual machines.

The problem comes when a large proportion of these machines are forgotten – but not decommissioned. The result: bills for unused resources; which is not only a waste, but increases the risks related to data, access, and security. Good Software Asset Management helps to ensure that only approved users have access to the full set of features and services offered by cloud environments, which promotes control over spend and over the software estate. Which is good news.

But to manage and optimize investments made in Cloud software or services effectively, your SAM solution needs to be able to provide visibility on the Cloud software and services being used.

SAM TECHNOLOGY NEEDS TO KEEP UP!

For most of you reading this post, you’ll be glad to know that the responsibility to provide such visibility falls on the shoulders of Software Asset Management technology vendors, like Snow Software. With ongoing massive investment and continued growth within the cloud and SaaS market, SAM needs to deliver solutions that will help to overcome the challenges Cloud and SaaS present.

At Snow, our strategy and research are heavily Cloud focused, with continued investment and research in cloud technologies and solutions that resolve the challenges of our customers. The release of Snow License Manager 8 and our new Inventory technology are significant steps toward eradicating cloud-services overspend.

We recently posted a blog on the ‘True Cost of Azure’, which highlights how easy it is to overspend within the Cloud environment, specifically focusing on the pay-as-you-go pricing and licensing concept for Azure, but how lack of control is the true cause of overspend, irrespective of payment plan, or choice of product.

In this instance, Automation Platform is your best friend, as it enables you to manage Cloud and virtual instances effectively. It allows users to reap the benefits of Azure services, but by automating processes to include approvals and decommissioning information, Snow’s Automation Platform prevents sprawls.

If your organization is worried about how to manage cloud assets, check out Snow’s recent webinar on why you still need Software Asset Management in the Cloud, which puts an end to the myth that Cloud management manages itself.

The evolution to Cloud is changing, or I would even go as far to say that it has changed the way vendors deliver software and services. The model has shifted the cost of software from the balance sheet to profit and loss.
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